The cost of banking is rising. Banks lost a lot of money the last few years. They are making it back with higher fees and new fees on checking accounts. You easily could be paying a few hundred dollars a year in bank fees. That can work out to a pretty high percentage of your average bank balance and is money you could be saving or spending on other things. It’s a good idea to look around for alternatives to your checking account.
Before looking around, be sure you’re getting the best deal possible from your current bank. Most banks will give credit for all your accounts with them when computing fees. Many fees generally are reduced or waived for customers with higher balances. Credit card and mortgage balances often are counted for this purpose. If you have a mortgage with the bank, you shouldn’t be paying fees for checking. Of course, the bank might not give you the best deal on the mortgage, and the savings from getting your mortgage elsewhere with a lower interest rate could be more substantial than the bank fees. Or you may not have a mortgage. In those cases, you should shop around for better checking alternatives.
After looking at banks in your area, take a look at online accounts and brokerage firms. In fact, you may not need a bank checking account. Some of the best deals on checking accounts are at brokerage firms.
Online accounts, whether at banks or brokerages, can be found without most fees charged by traditional banks. You should be able to avoid monthly fees and minimum balances. Many also will not charge for printing checks, overdrafts, and foreign transactions. A brokerage, for example, often will transfer automatically funds from your investment account to the checking account when needed to cover checks or withdrawals.
Many of the online banks and brokerages waive all ATM fees. Most conventional banks don’t charge fees on transactions their customers have on their own ATMs. But use another bank’s ATM and you are likely to be charged fees by both the bank owning the ATM and your own bank. The fees usually are a dollar or two by each bank per transaction. Many online banks and brokerages will pay the fees charged by the bank owning the ATM and not charge you a fee for using it.
The online banks and brokerages also will pay interest on checking balances, even very low balances, though the yields today are extremely low. The online banks and those associated with brokers are FDIC insured.
The discount brokerages are leaders in this field, including Charles Schwab, Fidelity, and TD Ameritrade. The most popular online banks are ING Direct and Ally Bank (part of GMAC Financial Services).
The downside of online banks and brokerages is that you don’t have a place for in-person transactions, especially deposits. Some of the brokers have offices around the country, and you may live near one of them. Otherwise, when you are paid in a paper check you have to mail it to the bank and wait for it to be processed and credited to your account (which usually takes a few days). Questions, complaints, and other transactions are handled online or on the telephone.
Another potential downside is it may be harder to obtain a home equity line of credit or other loan from a local bank when you don’t have a checking relationship with the bank, or you might have to pay a higher rate on the loan.
Banks and financial services companies changed in response to shifts in the economy. You also may want to change. When your banking fees are too high, shop around. Look online and you could find a solution with no fees.
An alternative is to completely dispense with a traditional checking account. You’ll find many younger people doing this, and there’s no reason you shouldn’t consider it.
Instead of a checking account, make all your purchases with debit cards or credit cards. Almost every retailer now accepts plastic for payment, even taxi cabs and fast food restaurants. For the few times you need cash, you can make use of an ATM. Again, you can look to online banks or any brokerage firm as a place to establish an account tied to a debit or credit card.
Many people are rightly wary of making a lot of credit card use these days. Interest rates and other fees are high. It seems to be easier to make a late payment that incurs those charges. Debit cards deduct charges directly from your account. There is no monthly statement and no fees for late payments. You need to keep enough money in the account to cover your charges. Regular bills, such as utilities, can be set up to be drafted automatically from an account. You’ll still see a monthly statement, but you won’t have to write a check and won’t risk late payment fees.
We’re getting to the point where there are enough alternatives that you won’t need a traditional bank checking account.
June 2010 RW.